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Governance

The New York Stock Exchange requires that the boards of all publicly traded corporations “conduct a self-evaluation at least annually to determine whether it and its committees are functioning effectively.”1 The purpose of this exercise is to ensure that boards are staffed and led appropriately; that board members, individually and collectively, are effective in fulfilling their obligations; and that reliable processes are in place to satisfy basic oversight requirements in areas such as strategy, risk management, financial reporting, performance measurement, compensation, and succession&nb

The Silicon Valley seems like the engine for growth in the US economy. According to the 2014 Silicon Valley Index, this area leads the nation in IPOs, patents registered, venture capital and angel investment, as well as leading the nation in income and high growth/high wage jobs. Many of the newest global technology wins such as Facebook, Twitter, and LinkedIn all have headquarters here.

Board governance is frequently discussed and often misunderstood. In this article, I offer an insider’s perspective on the topic. Over the years, I have had the privilege of serving on ten corporate boards, as well as being chairman and CEO of Medtronic, chairman only, and CEO only. I have also observed dozens of boards from outside the boardroom and engaged in numerous confidential conversations with members of these boards about the challenges they faced and how they handled them.

Why is it that despite all the corporate-governance reforms undertaken over the past two decades, many boards failed the test of the financial crisis so badly? In North America and Europe, for example, boards of financial institutions that failed to check management’s aggressive forays into US subprime mortgages saw their firms decimated during the 2008–09 economic meltdown.

Corporate boards are under pressure to take more responsibility for developing strategyand overseeing business risk after the financial crisis exposed many cases of inadequate governance. Yet, according to the latest McKinsey Quarterly survey on governance. corporate directors report that their boards have not increased the time spent on company strategysince our previous survey, conducted in February 2008—seven months before the collapse ofLehman Brothers. Moreover, 44 percent of respondents say their boards simply reviewand approve management’s proposed strategies.